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  1. Wealth
June 11, 2013

Squeezing the tax havens until their pips squeak

By Spear's

The sovereign debt crisis has now forced the issue into the open, as central treasuries grab every penny that they think is, or should be, due to them

It took the ongoing Great Recession of 2008 to reach those parts the taxman doesn’t normally get to, namely the offshore banks, trusts, and numbered accounts. The sovereign debt crisis has now forced the issue into the open, as central treasuries grab every penny that they think is, or should be, due to them.

Last Wednesday at an EU summit, led by the UK, France and Germany, this was the only issue on the agenda – apart from growth that is, but as no one knows where that is any longer, no one had much to say on that most important and elusive subject, so they looked offshore.

Every reader of this column knows why there’s no growth in Europe – namely that the single currency regime forces deflation onto the real economy – in a one-size-fits-none downward debt-and-death spiral. Just to spell out this simple economic truth is to risk being burnt at the stake for being a heretic.

Read more: Bury this busted flush of a single currency

The governments of the world have belatedly realised that only a global concerted action plan against tax havens is any good, as otherwise on their own they simply chase the money off somewhere else.

So, somewhat optimistically, last week the EU’s Big Three set the heavies on the soft targets in their EU-midst, namely Austria and Luxembourg, and those in Europe not in the EU too, such as Switzerland, tiny Lichtenstein, Monaco, Jersey, Guernsey, San Marino and the Isle of Man. Interestingly, none of these countries have been badly affected by the Great Recession. I wonder why…

Driving the money away

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The trouble is that the EU is likely to drive this money out of euros and into dollars, and to countries with sounder banking systems than the EU’s, places like Hong Kong, Singapore, Qatar, Dubai and many islands, such as the Marshall Islands (ever heard of them?) – anywhere, in fact, rather than busted eurozone-based Cyprus! They just don’t get it round at EU HQ… on anything, it seems these days.

The US showed them how to do it: when UBS Wealth Management got too big for its boots in America, and too big to run away, Uncle Sam put the legal boot in instead and got the names of all the American non-taxpaying numbered accounts, taxed them and received billions back, and thwacked a massive fine onto UBS for good measure.

Read more on UBS

UBS withdrew its wealth services from the other side of the Atlantic, and retreated with its losses and fines, as senior heads rolled. UBS is now determined to keep its much larger European client base secret and intact, but is happily out of the EU and with its own strong currency – the City of London, please take note.

The UK, three years behind the US as ever, got the point: you can only effectively tax activities that arise within or from those within your own jurisdiction. Place matters! So from 1 April, for example, all properties in the UK held by overseas nominee corporations were turned into April Fools by the new Stamp Duty: on a £35 million house, that would set you back £140,000 pa, even as these fly-by-night owners are moving these properties into offshore, non-charitable, no-named beneficiary trusts – whatever they are!

Corporate avoiders

Now HMRC are after the likes of Google, Amazon, Microsoft and Starbucks, who set up inter-group licensing deals to move profits to low-tax regimes and out of the UK (‘When we sell a cup of coffee, it’s not just any old cuppa, it’s a Starbucks cuppa, you see! Branded!’) followed by a revolting gurgling sound as all the profits are sucked out to low-tax Ireland.

Read more: Who can stop Germany sinking Cyprus, the PIGS and all?

There are big prizes to be had from concerted global action on tax evasion: all the cash parked in offshore accounts is put at between US$21 and US$32 trillion* – excluding the UHNWs’ toys, such as real estate, yachts and artworks – more than the combined GDP of the world’s two biggest economies. This could pay off most of the developed world’s sovereign debts in one fell swoop. Most of this cash is not invested anywhere, anyway, except in offshore bank deposits.

There are big problems in attacking offshore set-ups: it would require new legislation to redefine avoidance and evasion, which would mean junking most of the current tax code and practice, which is not about to happen soon, and it would require a certain degree of harmonisation on tax rules between all major countries, a project Angela Merkel is hoping she can launch soon on an unsuspecting EU – another doomed EU bourgeois, parochial dream of a grand project – in the new globalised world.

Forget it, Angela, the world is now far bigger than the EU German-driven hegemony, and it’s growing far faster, because the EU has no growth left in it, in the single currency prison. The future ain’t in the eurozone.

*Source:, based on data from the World Bank, the IMF, the UN and Central Banks

Read more from Stephen Hill

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